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The Master of Money: "The Snowball: Warren Buffett and the Business of Life" review

17 points by dpapathanasiou 17y ago

davidw 17y ago
I read it recently and liked it quite a bit. I think one of the things that stuck out for me is that he and Graham were taking this sort of 'quant' (using the term very loosely, as some people here do that, and I don't really know about it in detail) approach back in the 50ies - they absolutely poured over the stats in an era when that wasn't as easy as it is now. Now, Buffet is big enough to be able to do stuff ordinary investors can't, like buy entire companies. In other words, perhaps part of his success belongs to a bygone era that won't come around again.
- jzachary 17y ago
  Graham and Buffet engaged in"fundamental analysis", which attemptes to determin an implicit value of a company based on business (accounting/financial) information. The traditional source of this information is from balance sheets, income statements, sales figures, and talking with management. This is drastically different from "quant analysis", which tries to determine a stock price, or engage in arbitrage, from previous movements, relations to other stocks, and a host of other data largely irrelevant to computing the implicit value of a company. This information comes from real-time data streams from god-knows-where.
  - byrneseyeview 17y ago
    A fair number of quants use traditional valuation measures. In fact, one of the reasons that by-the-numbers value investing is so hard now is that so many funds are just buying the bottom 10% of companies by price/book, and shorting the top 10%; that compresses the price differences, meaning that value investors have to get more subjective. To the extent that anybody was a quant back then, Graham probably counted: he did use lots of statistical rules, and he didn't use very much else.
  - sachmanb 17y ago
    that and buffett has been outspoken against quants. he has also been accused of 'being in the right place at the right time' or 'lucky' quite a few times, but this is not the case. another good book on buffett which has some sections dedicated to buffett vs quants and buffett vs 'its all luck' ppl is "The making of an American Capitalist" (http://www.amazon.com/Buffett-American-Capitalist-Roger-Lowenstein/dp/0385484917 http://www.amazon.com/Buffett-American-Capitalist-Roger-Lowe...) -- first book I got on him, perhaps the best (got snowball, haven't read it yet).
    - byrneseyeview 17y ago
      The books go well together. "Making of" is way more hagiographic, and less detailed. What would be really great would be a wikified list of his transactions, linked to the financial statements and news stories that were current at the time.
  - davidw 17y ago
    Ok, I'll explain what I mean better: By looking at certain bits of data, they attempted to find these 'cigar butt' companies - Graham more than Buffett. The way they did that was to comb through a lot of data in a way that can now be done by a computer extremely quickly. So perhaps 'quant' is wrong... shall we say 'data driven'? Of course that's not all Buffet did/does, but it just struck me as an edge that he had then that he couldn't have now.
byrneseyeview 17y ago
His share price is still off more than 40 percent from its highs, underperforming even the S&P 500. Oh, wow. I thought Lewis was in finance, but apparently he doesn't realize that the peak-to-trough performance of one member of an average is very likely to be higher than the peak-to-trough performance of that average. This is true, even with a two-stock index: Year Stock A Stock B Avg. 0 10 12 11 1 12 10 11 2 5 5 5 Note that A and B both had a larger peak to trough loss than the average. And yet, the average consists of A and B. e railed against derivatives as weapons of mass destruction, and now turns out to have been sitting on a $68 billion pile of credit default swaps and exotic put options on various stock market indexes. He complains specifically about counterparty risk. Someone who read what he said would know that; someone who heard thirdhand quotes might not. The derivatives he holds don't have any counterparty risk for him, because he's getting all the cash up front and paying out based on future events.
biohacker42 17y ago
Great article worth the long read.

I read it recently and liked it quite a bit. I think one of the things that stuck out for me is that he and Graham were taking this sort of 'quant' (using the term very loosely, as some people here do that, and I don't really know about it in detail) approach back in the 50ies - they absolutely poured over the stats in an era when that wasn't as easy as it is now. Now, Buffet is big enough to be able to do stuff ordinary investors can't, like buy entire companies. In other words, perhaps part of his success belongs to a bygone era that won't come around again.

jzachary 17y ago
Graham and Buffet engaged in"fundamental analysis", which attemptes to determin an implicit value of a company based on business (accounting/financial) information. The traditional source of this information is from balance sheets, income statements, sales figures, and talking with management. This is drastically different from "quant analysis", which tries to determine a stock price, or engage in arbitrage, from previous movements, relations to other stocks, and a host of other data largely irrelevant to computing the implicit value of a company. This information comes from real-time data streams from god-knows-where.
- byrneseyeview 17y ago
  A fair number of quants use traditional valuation measures. In fact, one of the reasons that by-the-numbers value investing is so hard now is that so many funds are just buying the bottom 10% of companies by price/book, and shorting the top 10%; that compresses the price differences, meaning that value investors have to get more subjective. To the extent that anybody was a quant back then, Graham probably counted: he did use lots of statistical rules, and he didn't use very much else.
- sachmanb 17y ago
  that and buffett has been outspoken against quants. he has also been accused of 'being in the right place at the right time' or 'lucky' quite a few times, but this is not the case. another good book on buffett which has some sections dedicated to buffett vs quants and buffett vs 'its all luck' ppl is "The making of an American Capitalist" (http://www.amazon.com/Buffett-American-Capitalist-Roger-Lowenstein/dp/0385484917 http://www.amazon.com/Buffett-American-Capitalist-Roger-Lowe...) -- first book I got on him, perhaps the best (got snowball, haven't read it yet).
  - byrneseyeview 17y ago
    The books go well together. "Making of" is way more hagiographic, and less detailed. What would be really great would be a wikified list of his transactions, linked to the financial statements and news stories that were current at the time.
- davidw 17y ago
  Ok, I'll explain what I mean better: By looking at certain bits of data, they attempted to find these 'cigar butt' companies - Graham more than Buffett. The way they did that was to comb through a lot of data in a way that can now be done by a computer extremely quickly. So perhaps 'quant' is wrong... shall we say 'data driven'? Of course that's not all Buffet did/does, but it just struck me as an edge that he had then that he couldn't have now.

byrneseyeview 17y ago

His share price is still off more than 40 percent from its highs, underperforming even the S&P 500. Oh, wow. I thought Lewis was in finance, but apparently he doesn't realize that the peak-to-trough performance of one member of an average is very likely to be higher than the peak-to-trough performance of that average. This is true, even with a two-stock index: Year Stock A Stock B Avg. 0 10 12 11 1 12 10 11 2 5 5 5 Note that A and B both had a larger peak to trough loss than the average. And yet, the average consists of A and B. e railed against derivatives as weapons of mass destruction, and now turns out to have been sitting on a $68 billion pile of credit default swaps and exotic put options on various stock market indexes. He complains specifically about counterparty risk. Someone who read what he said would know that; someone who heard thirdhand quotes might not. The derivatives he holds don't have any counterparty risk for him, because he's getting all the cash up front and paying out based on future events.

biohacker42 17y ago

Great article worth the long read.